Daily Commentary

MarketMinder’s View: This piece cites a few publicly traded companies, so a friendly reminder that MarketMinder doesn’t make individual security recommendations. Their mentioning here is incidental to a broader theme we aim to highlight. Namely, Q3 US corporate earnings expectations are up, perhaps a sign of some warming sentiment. “Among the companies in the S&P 500 Index that provided guidance for their third-quarter results, more than 22% were expecting to beat analysts’ expectations — the highest reading in a year, according to data compiled by Bloomberg Intelligence. In addition, the share of firms issuing worse-than-expected profit forecasts was the lowest in four quarters as well.” Analysts’ consensus estimates for US stocks’ Q3 earnings growth ticked up to 6.9% y/y from a projected 6.7% in May, which this piece ties to tariffs’ milder-than-expected effects. That doesn’t surprise us—we thought US businesses’ adaptability to trade policy has been an underappreciated positive and reason to remain bullish this year. The article ends with some misperceived speculation that Fed rate cuts will boost corporate profits ahead, which may be a sign moods aren’t as optimistic as portrayed here. Monetary policy isn’t the economic swing factor many think it is—it matters to a small degree, but central bankers aren’t dictating the economy or market’s direction by raising or lowering rates.

MarketMinder’s View: Last Friday, credit rater Morningstar DBRS downgraded French debt from AA (high) to AA, citing “‘challenges posed by growing domestic political fragmentation and reduced policy consensus in recent years.’” This comes just one week after Fitch, another rating agency, similarly downgraded itsFrench debt rating. Two downgrades in succession may seem like bad news for Le Republique, but we don’t see some huge, underappreciated negative here. As we have covered on several occasions, credit ratings are backward-looking opinions that confirm what many already know, so they aren’t make or break for forward-looking stocks. Credit raters often move in lockstep, too—even less-commonly cited ones versus the big three (Fitch, S&P and Moody’s). In this case, France’s political instability isn't surprising anyone at this point—Francois Bayrou’s ousting earlier this month marked the country’s third prime minister to fail a no-confidence vote in just a year. Stocks are quite used to this revolving door by now. Secondly, and perhaps most importantly for markets, French debt is still affordable—downgrade or not. As we covered earlier this month, France’s tax receipts can more than service the interest payment on its debt, so this debate is arguably much more political than it is economic—with solvency fears just a repeat false fear. Keep this in mind moving forward, as credit ratings typically garner far too many headlines.

MarketMinder’s View: Some positive news across the pond announced last week, as UK August retail sales impressed. “British retail sales rose by a stronger-than-expected 0.5% in August, helped by sunny weather, but sales growth in July was revised slightly down, official figures showed on Friday. Economists polled by Reuters had mostly expected that retail sales volumes would increase by 0.3%.” The strength was broad-based as non-food stores—specifically clothing and department stores—led the way, extending their rebound from a tough stretch in April and May. Yet sales at food stores also contributed, as British butchers and bakers reported increased foot traffic in August. Mind you, these data are backward-looking and thus nonpredictive, and retail sales don’t capture services spending—the lion’s share of consumption in most developed nations. However, we think these data point to some underappreciated economic resilience: Despite fears about April’s employer tax hikes spurring calls for slower growth and weaker spending, the UK economy continues to perform better-than-expected—a bullish boost for stocks.